The Anti-Apple Pay Scheme

Leave it to Apple to stir the pot. Usually it's because of an outrageously great technology, or for us in the supply chain business about how well they handle their own supply chain. This time it's about a payment scheme that involves technology in their newest devices. OK, so maybe it really isn't Apple making waves, but it's still falling on the company as the trigger to the debacle. The basis of this story is that Apple's implementation of NFC (near field communication) in its iPhone6 line is gaining immediate traction where earlier attempts by Google and others have floundered. So the technology isn't really something new, it's just that Apple has the clout to get its army of fans enthused about its un-plastic credit card. This at a time when there is significant activity in the payment processing world to buck the established credit card industry. A consortium of retailers are just about to launch a new payment processing scheme that accepts payments from customers via mobile devices but without any 'fancy' chips... Oh, and also without any fancy credit card processing fees.

So first - what's wrong with the credit card industry and why do retailers care?The first issue is the payment processing fees that go to the credit card companies. It can range from 2% to more than 3% of the transaction. Customers don't notice it because the costs are baked into the retail prices, but retailers see that as extra margin just waiting to be added to their bottom lines. Really--- a 2% boost to profits. Of course, retailers could turn that around and add an incentive of 2% to entice customers to use what they have dubbed CurrentC to pay for their purchases rather than a credit card or Apple Pay... but they won't.

CurrentC is not entirely alone in its bid to move away from credit card processors and bank-managed money transfer systems. Cash transfer system Dwolla bypasses the ACH system and eliminates both the ACH fees and (more importantly) the 3 to 5 day delay typically imposed by ACH systems. Participants can use their Dwolla account for payments to participating retailers who receive cash immediately and pay a MAXIMUM of $0.25 per transaction of any amount.

While the number of options is increasing, the fight for the additional margins is escalating. There is likely to be no clear winner in this fight for months or even years. Retailers that have joined the MCX group (Walmart, CVS, and others) have plenty of weight behind them but are risking the ire of its customers in rejecting the use of Apple Pay. My guess is that the retailers in this struggle are not going to win this battle without giving up at least some of their possible gains to their customers.

And there are other issues at stake that include privacy and financial security that are currently built into the credit card system and don't apply to the CurrentC plan. For more about the issues at that end of the spectrum read this great analysis by my colleague Wayne Rash here.